What is Roku, and how does it work?

Sep 29, 2022 By Triston Martin

In Japanese, Roku, which means "six," was the sixth business Anthony Wood created in 2008. Roku Inc. (ROKU) enables customers to access both free and paid video content on television through the internet.

On a single, centralized platform, Roku lets you download and view services like Netflix (NASDAQ: NFLX), YouTube owned by Google (NASDAQ: GOOGL), Apple Inc. (AAPL), Amazon Prime Video (NASDAQ: AMZN), and hundreds of others.

Roku provides a TV streaming platform and streaming gadgets to customers. The platform serves as a TV streaming ecosystem, allowing users to stream hundreds of channels on various streaming platforms while also allowing content creators and advertisers to access audiences of viewers in different countries worldwide. The sale of digital advertising and content marketing services is the primary source of revenue generation for Roku.

Additionally, it offers a line of streaming products under the Roku name, including smart soundbars, players, and streaming sticks.

Roku has also developed a mobile app that works with Android and iOS devices and has features comparable to the Box or Smart TV.

Currently, more than 51 million individuals use Roku's services each month. On its platform, more than 10,000 channels are available.

Roku's Financial Results

The financial results for Roku's fourth quarter (Q4) of its fiscal year (FY), which concluded on December 31, 2021, were released in mid-February. Roku reported a total quarterly income of 23.7 million dollars, a decrease of 64.8% from the previous year's period. To $865.3 million, net revenue for the quarter increased year over year (YOY) by 33.2%. Roku's gross profit, which it uses as a performance indicator for its business sectors, increased by 24.3% yearly to $379.6 million. Operating costs for Roku increased by 49.1% YOY, which was substantially higher than revenue growth and hurt net income for the quarter.

According to the Crunchbase article for Roku, the company has raised $208.6 million across 11 rounds, and as of April 2022, its market valuation was $13.13 billion.

Roku Business Models

When traditional cable packages have been replaced by digital streaming, Roku has strategically established partnerships with businesses that might initially appear to be rivals. Roku focuses on getting as many people to use its platform as possible and profits from the interaction. As part of its products, it also boasts a successful "Roku" channel.

Additionally, the company also makes money when customers subscribe to video services. More and more people are using subscription services, giving them unrestricted access to various programs for a monthly fee. Roku, for instance, receives a share of the money if a viewer subscribes to a subscription service like Netflix through the streaming media player.

Roku introduced a method in 2019 that lets customers subscribe to premium channels like Showtime and Starz and then pay for all of the services with a single bill.

Roku Revenue: How does Roku Make money?

Most of Roku's revenue comes from its distinctive advertising, a sector it is growing. The business recently disclosed that its media and advertising revenues now outpace connected-TV device sales.

The Platform and Player revenue are Roku's two primary business segments, and each of these segments breaks net revenue and gross earnings.

Platform Revenue

The Platform segment makes money from selling digital advertising and associated services, content marketing services comprising transaction and subscription revenue shares, premium subscriptions for clients preferring ad-free content, entertainment and media promotional expenditure, and the sale of branded channel buttons on the company's remote controls. It also makes money from licensing contracts with service providers and TV brands.

In Q4 FY 2021, the gross profit of the platform segment increased 41.5% year over year to $425.6 million. The company's net income increased by 49.3% to $703.6 million over the same three-month period last year. The Platform feature accounts for 81% of net revenue and 100% of the gross profit of Roku.

Player Revenue

The selling of streaming players and audio goods provides revenue for the Player category, and hardware sales, embedded software sales, and upgrade sales are all included. Most of Roku's players and audio devices are sold via retail distributors in the United States, including physical stores, online shops, and its website.

The segment's Q4 FY 2021 gross loss was $45.9 million, down from the $4.6 million gross profit of the prior quarter. In the fourth quarter, the segment's net revenue decreased 9.5% year over year to $161.7 million, or around 19% of the overall net income of the platform.

How does Roku make money from ads?

The majority of Roku's yearly revenue comes from ads. Advertising was the major revenue generator in 2020, with $1178.8 million in revenue, and made up 74% of the total revenue gained in 2020.

One of Roku's primary sources of revenue is the independent channel known as The Roku Channel. Investors pushed advertisements when they paused between the content. Additionally, Roku enables targeted, tailored adverts that account for various variables, including user preferences, metadata, location, etc.

The investors' profits are increased by using personalized adverts, which benefits the overall revenue at Roku.

How does Roku make money from Netflix?

The initial customer of Roku was Netflix, then MLB TV, MLB Video On Demand, then Amazon Video on Demand. The Roku Channel and numerous other subscription streaming services, like Disney+, NBCUniversal's Peacock, and HBO Max, have just been introduced to the device.

On the Roku platform, several subscription packages are available, and users can choose the bundles that best suit their needs.

Roku receives a part of the revenue from these streaming services in return for delivering profitable subscriptions at reasonable pricing, marketing these subscriptions, and offering a secure and convenient transaction and payment method.

These subscription fees account for about 20% of its total revenue.

The Latest Roku Developments

By the end of February 2022, Roku decided to delete Russia Today's app, the Russian state television network, from its Roku Channel Store in Europe. In light of Russia's recent invasion of Ukraine, Roku is one of several internet companies, including Facebook Meta Platforms, limiting access to Russian official media outlets.

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